Tide Water Oil Co (I) Ltd Management Discussions

Economy Global economy

Despite high inflation level, persistent geopolitical concerns, supply chains disruptions rattling the global economy, it exhibited remarkable resilience and clocked a growth rate of 3.2% in CY 2023¹. While the advanced economies achieved a growth rate of 1.7%, the emerging market and developing economies (EMDEs) grew by 4.4%. Along with this, the European region, United States as well as Middle East and Central Asia grew by 0.5%, 2.5% and 2.0% respectively.

In addition to this, with the implementation of effective monetary policies by central banks, it resulted in the decline of global inflation from 8.8% in CY 2022 to 6.8% in CY 2023². Furthermore, a fall in energy prices also contributed to the decline in the global inflation level.

Outlook

The global economy is anticipated to maintain its growth rate at 3.2% in CY 2024, while inflation is projected to decline further to 5.9%. According to International Monetary Fund (IMF), inflation will reach its target levels faster in advanced economies as compared as to EMDEs. With global inflation declining faster-than-anticipated, central banks are expected to ease their monetary policy, further supporting the revival of global economic activities in the forthcoming years. Furthermore, advanced economies are expected to increase to 1.7% in CY 2024 while there might be modest slowdown for EMDEs. Moreover, the merchandise trade is expected to grow by 2.6% in CY 2024 and further increase by 3.3% in CY 2025 and further align with the global growth goals.

P- projected

Source: World Economic Outlook July 2024, IMF

Indian economy

Amid the prevailing uncertainties in the global economy, the Indian economy maintained its position as one of the fastest- growing economies in FY 2024. The Indian economy achieved a growth rate of 8.2%, with gross value added (GVA) growing by 7.2%. Inflation was also anchored at 5.4%, supporting the robust private consumption in the economy.

With the improvement of private consumption, the country also recorded an increased sales of consumer durables, passenger vehicles and two-wheeler vehicles in India in the year under review. The economys growth can be primarily attributed to the proactive intervention by the Indian Government through implementing strategic schemes and programmes for economic development. Simultaneously, the Reserve Bank of India (RBI)

also contributed to the economys growth by implementing and monitoring relevant monetary policies.

The Government of India have undertaken various initiatives to transform the business environment in the country. This resulted in a resilient inflow of foreign direct investment (FDI) amounting to USD 71.0 billion in the reported year. Furthermore, India used its presidency at the G20 summit to showcase its strengths, attracting foreign investments and bolster economic growth.

On the backdrop of a robust Indian economy, various sectors recorded positive growth trajectories in the report year, especially, the manufacturing sector. The sector grew by 9.9% in FY 202324,³ supported by Government initiatives such as Make in India, which strengthened the manufacturing activities in the country.

Outlook

The outlook for the Indian economy remains optimistic with projections by RBI indicating that the economy will grow by 7.0% in FY 2 0 24-25⁴. With the focus to develop India as a manufacturing hub, the Indian Government has undertaken some strategic measures. The Indian Government has offered a reduced tax rate of 15% to newly established domestic manufacturing companies, augmenting the growth of the manufacturing sector.

According to International Monetary Fund, India is anticipated to become the third largest economy, surpassing Japan and Germany. Furthermore, India can expect changes in the governance and policy structure, further steering the course of the Indian economy in the coming years.

Industry

Global lubricant market

Lubricants play a vital role in the automotive industry, providing lubrication, reducing friction and ensuring optimal performance and longevity of vehicles. With the growth of the automotive industry, it resulted a surge in lubricants sales.

Owing to increasing vehicle ownerships and rapid industrialisation, the Asia Pacific established itself as the highest contributor to the growth of the lubricants industry and became the highest revenue generating sector in CY 2023. In CY 2023, the global lubricant market attained a market value of USD 136.71 billion⁵.

In addition to this, with increasing environmental consciousness across the globe, the industry is witnessing a paradigm shift towards bio-based lubricants, as they are environmentally sustainable in comparison to other petroleum-based lubricants. Furthermore, the use of synthetic lubricants has gained traction in the reported year.

Outlook

Moving ahead, the global lubricant industry is expected to attain a market size of USD 253.85 billion by 2030.⁶ With the revival of global economic activities in the coming years, it is anticipated to positively contribute to the growth of the global lubricants industry. A surge in construction and manufacturing activities, rapid urbanisation and industrialisation are expected to become the key growth drivers.

Moreover, with the advent of technology resulting in the development of high-performance lubricants, it is expected to accelerate the growth of the industry. Furthermore, North America is expected to register the highest growth in the lubricant industry in the coming years, followed by the European markets experiencing robust growth due to booming chemical manufacturing activities in the region.

Indian lubricant market

India is the third largest automotive and lubricant-consuming country and among the top five major lubricant-consuming countries, India has strong lubricant demand growth potential. The Indian lubricant market has sustained several headwinds and exhibited resilient growth momentum throughout the reported year.

With the integration of technology, it has helped in the development of advanced lubricant formulations that provides better oxidation stability and improved wear protection. Consistent research and development activities in the industry have also resulted in the development of lubricants that provides thermal stability and resistance against extreme conditions. Based upon domestic applications, the industry can be segregated into automotive lubricants and industrial lubricants. The domestic industry adheres to the regulatory standards and specialisations set by the Bureau of Indian Standards (BIS) and the Automotive Research Association of India (ARAI).

In the reported year, the automotive sector made a significant contribution to the growth of the domestic lubricant industry, driven by increasing number of vehicle ownership. Furthermore, the growth in manufacturing and construction activities also supported the increased usage of industrial lubricants. Regions such as Maharashtra, Tamil Nadu and Gujarat remained the leading markets for lubricants, owing to strong industrial base and manufacturing activities.

However the lubricant market in India continued to witness stiff competition among players leading to an overall shift in perception of lubricants market from volume driven to value driven. Further the advent of various international lubricant players and new technological advancement in automotive hardware design are leading to demand for more efficient and premium lubricants. Though the consumer automotive lubricant market continues to remain largely dominated by two-wheeler oils, increase of passenger cars and on-highway and off-highway

fleets is also expected to contribute to the volume growth of the lubricant industry in the coming future.

Though the economy remained more or less stable during the year, rise in the input costs continued to depress the returns of the industry. Additionally, depreciation of Rupee due to increase in rate of interest by Central Banks globally coupled with FPI withdrawals from domestic markets also had its effect on the trade dynamics. In spite of these constraints, your Company has been able to register growth in revenues, due to its holistic approach towards dynamic pricing decisions, strong marketing network, strategic sourcing, leveraging long-term contracts, value improvement initiatives, extensive focus on service and quality. Further, the Company is also leveraging upon capital intensive R&D programmes in view of modernization of vehicles and increasingly stringent emission norms.

With the advent of BS-VI vehicles new emission standard for all new vehicles has been set and this has led to introduction of various after treatment devices and catalysts to reduce harmful emission. Your Company with its well diversified basket of products is expected to perform reliably in the coming years and exploit envisaged opportunities. Further, investment in Veedol International Limited and Veedol UK Limited (formerly Price Thomas Holdings Limited) bestowed competitive edge unfolding promising opportunities globally.

Outlook

The outlook for the Indian lubricant industry signals robust future growth, supported by growing urbanisation, increasing focus on infrastructure development and rising disposable income of the consumers. The industry is expected to grow by a Compound Annual Growth Rate (CAGR) of 3% until 2027⁷. It is projected that commercial automotive lubricants industry will undergo transition with the increasing adoption of higher-quality lubricants. This is further expected to be supported by the vehicle scrappage policy and surging addition of new vehicles. With the paradigm shift towards electric vehicles (EVs), it will increase the demand for EV fluids in the forthcoming years. Owing to superior mechanical compatibility with automobile components, synthetic lubricants are also expected to gain traction in the Indian markets.

In view of the above, the Indian automotive industry is about to witness some major changes which may have long drawn impact on the lubricants market as well. Electrification of vehicles or electric mobility although poses a threat as it is expected that adoption of electric vehicles will increase, particularly in two-wheelers and small commercial vehicles however, it also provides an opportunity for entities who are well poised to take advantage of the new opportunity. The industry is envisaged to brace for the change and continue its grip especially in personal vehicle segment. The Company is committed to propelling its growth by expanding participation across diverse price segments, ensuring broader availability across geographic strata, reinforcing its workshop presence, and making substantial investments to nurture premium brands. Based on the current scenario your Company will continue to focus on its

core strategies and line of business besides leveraging other opportunities to extend the distribution base and network for increasing its market share. The two-wheeler and passenger car lubricants category is expected to perform well as rising disposable incomes and soaring population of automobile users will result in increased spending on lubricants. For commercial vehicle segment growth in construction and off-highway sectors due to investment in infrastructure is likely to lead to lubricants demand growth in this category. The industrial sector trended positively and as activities build further momentum, the demand for industrial lubricants is expected to grow with optimistic prospects for the long term. With a substantial capex investment program, your Company has automated quality- critical processes, ensuring continuous risk reduction. The program role extends to carrying out feasibility studies for new product introductions and successful line trials for packaging initiatives. Additionally, the integration of technology resulted in cost-competitive formulations, generating more value for businesses. Further with its customer oriented outlook and R&D initiatives, your Company is expected to continue to meet stakeholders expectation of both short term and long term performance. Your Company is also focusing on digitization and e-commerce has proved to be immensely beneficial for your Companys business with respect to better market coverage and improved customer service.

Opportunities and threats

The lube industry is characterised by brand building, innovation and premiumisation, which aids market share gains and pricing power. As new products are launched based on largely homogenous specifications (like viscosity), branding helps to boost customer preference. With increasing environmental concerns and need for high quality lubricants to improve fuel economy, the demand for premium lubricants is gaining momentum. Further poor air quality is forcing the Indian government to tighten emission standards and improve fuel quality. This bodes well for lubricant quality improvement including use of synthetic lubricants. Also acceleration in industrial activities can be further a notable driver going forward. The bazaar trade has been the mainstay for the Company during the last year in terms of margin and volume. Your Company is well positioned through BS-VI compliant offerings across categories to leverage this opportunity. The Company continued to focus on agricultural sector with supply of tractor oils and other lubricants as required in that sector. Further your Company is focusing on the commercial vehicle segment with an improved portfolio of gear oils, coolants, greases, and engine oils, etc. and sustained brand building efforts. The strategy in the lubricant industry has now been progressively shifting from sales push to brand pull so your Company addresses these opportunities by fortifying its offerings and widening its product range. The Company is also committed to its digitalization strategy, with ongoing initiatives and focus on its bazaar trade which is lucrative in terms of margin and volume. To cater to industry demand, the Company has a wide range of excellent products in different segments under its umbrella brand VEEDOL. The Companys various other sub-brands such as Prima and Take Off have also

been able to create goodwill in the market for their quality. The support extended by an effective and efficient network of dedicated distributors, dealers and consignment depots across the country and additionally various Loyalty Programmes with dealers and retailers have strengthened the marketing and distributing network of the Company.

The long-drawn impact of the pandemic on the industry has created considerable slowdown in the sustained growth momentum. The overall lubricant market grew during 2023-24

as compared to earlier years but could not reach the pre-covid levels. Further, with the increasing spread of new generation engine and constant technology upgradation, the volume growth in the industry is expected to remain sluggish. As a net base oil deficit market, India heavily relies on large-scale imports of base oils and additives. This reliance on imports exposes the lubricants business to fluctuations in foreign exchange rates and potential disruptions in the supply chain. The OEMs which are introducing lubricants under their own brand name are further impacting the competitive landscape.

As such the Company is subject to usual opportunities and threats which are germane to the industry per-se and can be broadly represented as under:

Manufacturing industry

The support of Government policies such as the Make in India scheme and the Production Line Incentive (PLI) scheme are projected to bolster the manufacturing sector. With the Government of India focusing on developing India as a global manufacturing hub, it is anticipated to increase the demand for industrial lubricants, thereby contributing to the growth of the industry.

Automobile industry

Driven by rapid urbanisation, increasing population of middle-class income groups and manufacturing facilities⁸, the automobile market is poised for significant growth and is expected to attain a market size of USD 300 billion by 2026. This provides lucrative opportunities for the domestic lubricant industry.

Urbanisation

India is undergoing a phase of rapid urbanisation and by 2036 it is expected that 40% of the Indian population will be living in towns and cities. With this rapid urbanisation, there is expected to be increase in two-wheeler vehicles, increasing the demand for lubricants.

Environment concerns

With the growing awareness about environmental sustainability, there has been a significant shift towards environmentally sustainable products. With the lubricant industry producing bio-based fuels, this can help in attracting eco-conscious consumers, further propelling the growth of the industry.

Strong competition

The Indian lubricant industry is highly competitive with the presence of both domestic and international key players. This impacts pricing strategy and overall profitability of the lubricant companies. The fierce competition poses a threat to the industry as market players have to significantly invest in research and development to stay ahead of the curve. This has an impact on the margins of the companies. Moreover, international players and OEMs, can leverage their strengths in technology, brand reputation and expertise to gain an advantage over domestic lubricant players.

Growth in EVs in India

The Indian EV market size is anticipated to grow at a CAGR of 66.52% between CY 2022 and CY 2029 and attain a market size of USD 113.99 billion. In addition to this, the country has set an ambition to increase the share of EV sales in India by 30% in private cars, 70% in commercial vehicles, 40% in buses and 80% for two-wheelers and three-wheelers, by 2030⁹. Also, it is expected that India to gain 100% local production of EVs, thereby accelerating the transformation of the Indian automobile industry. However, petroleum-based lubricants used in internal combustion engines face a threat from the rising adoption of electric vehicles. However, this can also be percieved as an opportunity for companies who are well poised to adopt the change.

Company overview

Tide Water Oil Co. (India) Limited, owner of brand Veedol, is a leading manufacturer and marketer of quality lubricants offering high-performance engine oils for passenger cars, two/three- wheelers, heavy commercial vehicles, off-highway vehicles, buses and tractors. The Company has been catering to both automotive and industrial segments since 1928. Besides having a pan India presence, operations of the Company spread to over 70 countries around the globe.

With headquarters in Kolkata and Corporate Office in Mumbai, the Company has its other regional offices in New Delhi and Chennai besides Kolkata and Mumbai. The strong retail distribution network of the Company, consisting of more than 500 direct distributors and more than 50,000 retail outlets and workshops has facilitated the Company to establish a wider market and customer base. Along with this, the Company has two in-house R&D centres, Navi Mumbai and Chennai, recognised by the Department of Scientific and Industrial Research, Government of India.

Segment-wise Performance

The Company is a single-segment company as mentioned in Note 48 of the Accounts.

Products

Automotive Lubricants

• Two-Wheeler Oils

• Passenger Car Motor Oils

• Commercial Vehicle Oils

• Tractor Oils

• Off-Highway Oils

• Greases

• EV Fluids

• Gear & Transmission Oils

• OEM Oils

Industrial Lubricants

• Hydraulic Oils

• Thermic Fluids

• _{Spindle Oils}

• Turbine Oils

• Hydraulic & Circulation Oils

• Heavy Duty Hydraulic Oils

• Compressor Oils

• Refrigeration Compressor Oils

• Steam Cylinder Oils

• Industrial Gear Oils

• Metal Working Fluids

• Slideway Oil

• Mill Roll Oils

• Pneumatic Tool Oils

• Transmission Oils

• Coolants

• Lithium Soap Greases

• Lithium Complex Greases

• Speciality Greases

• Graphite Greases s

• Calcium Soap Greases

5. • High-Temperature Greases

• Cardium Compounds

• Industrial-Speciality Range

• Automotive Fluids

Specialities

• Vehicle care

Company outlook

Veedol continues to remain a trusted brand that has a position in the industry as a value-for-money Company. In the coming years, the Company is expected to leverage its roadmap and strategic investment decisions to attain its long-term growth targets. The organisation aims to focus on its profitable growth in the forthcoming years and stay ahead in the lubricant industry. Moreover, the Company aims to expand into the international markets through its network of distributors and franchise partners. This expansion is further expected to benefit the Company by diversifying its revenue sources and to reach a wider market, thereby strengthening its position in the domestic and international markets.

Human resource

The Company recognises its human resources as its key driver in steering the organisation towards success.

In FY 2024, the total number of permanent employees including factory workmen was 471.

The Company focuses on hiring the right talent to optimise its innovation, productivity and performance efficiency. The Company offers unique training programmes for its employees through a modular battery mode of learning that provides targeted and consistent learning and development opportunities for its employees. Throughout the year, the Company ensured providing a positive and healthy working environment for its workforce. The COD had been successfully undertaken

at Silvassa and Turbhe. Moreover, in the reported year, the HR department achieved complete digitisation of its operations. This transformation was one of the significant milestones for the Company. There was no other material development in the company: human resources in the reported year.

Corporate Social Responsibility (CSR)

The Company acknowledges the impact of its operations on the local communities and stakeholders. Thereby, the Company: CSR activities focus on empowering the communities. The key focus areas included skill development and livelihood generation education, maintaining health and safety and ensuring environmental sustainability.

The CSR contributions made by the Company during the year 2023-24 are as under:

Name of the Project No.	Location of the project		Amount spent for the project (in J crores)	Name of Implementing Agency
1 Contribution for Mobile Medical Unit / Mobile Healthcare Unit	Maharashtra	Thane (Turbhe)	0.55	SEVAMOB
	West Bengal	Kolkata and Howrah
2 Contribution for financial support to project for promoting women empowerment and gender equality	Pan India	Pan India	0.15	SEVAMOB
3 Contribution for providing financial assistance for providing quality education to underprivileged children.	Maharashtra	Pune	0.20	I-Teach Movement
4 Contribution for skill development and livelihood support program for autistic adults	Uttarakhand	Mussoorie	0.05	The Gateway Trust
5 Contribution towards projects for sustainable development	Tamil Nadu	Chennai	0.04	Indian Institute of Technology, Madras
6 Contribution towards projects for employment enhancing vocation skills through Veedol Auto Mechanic Academy Project	West Bengal	Kolkata	0.07	Veedol Auto Mechanic Academy
7 Contribution towards upskilling training on BS-VI emission standards	Pan India	Pan India	0.55	Automotive Skills Development Council
8 Expenditure for appointment of vocational institute for managing the operation of running automotive technician training courses at VAMA	West Bengal	Kolkata	0.08	George College of Management and Science
9 Contribution for providing financial assistance towards Infrastructure development of the school of Shree Trust	Maharashtra	Karla	0.30	Shree Trust
10 Contribution for promoting quality education among students from vernacular background	Gujarat	Tintoi	0.30	Shree Tintoi Education Society
11 Contribution for providing financial assistance towards childrens education in the Sundarbans area	West Bengal	South 24 Parganas	0.04	Purnima Foundation
12 Contribution towards financial support to blind students to pursue elementary education	Maharashtra	Mumbai	0.01	Bright Future Organization
13 Contribution for providing financial assistance towards underprivileged children for straight spine surgery	West Bengal	Kolkata	0.10	Operation Straight Spine
14 Contribution for providing training towards promoting the knowledge of emergency first- aid treatment at the site of emergency	Madhya Pradesh	Bhopal, Indore, Jabalpur and Gwalior	0.10	Aim Achievers Education Society
		Total	2.54

The CSR activities of the Company are largely undertaken in and around the places wherefrom the Company / its plants / its offices operate. As such the beneficiaries of these projects may form a part of the various stakeholders associated with the Company at large. The Company has undertaken various initiatives which are aimed towards serving the people belonging to the disadvantaged, vulnerable and marginalized section through its CSR contributions towards projects that have identified such beneficiaries. During the year the Company has made contributions for providing education to underprivileged children, first generation learners, orphans, destitute and children from extremely financially weaker section. It has also contributed to various non-profit seeking organizations dealing with physically challenged, vulnerable patients and organizations engaged in providing medical facility to the poorer section or to remote locations where public healthcare is scarcely available. CSR initiatives of the Company include steps undertaken by the Company for providing skill development training to autistic adults / garage owners / mechanics and contributing for projects promoting education among children from socially and economically backward groups. Also, the Company has contributed for projects aimed at medical treatment of underprivileged children. Further the Company has also sponsored project relating to imparting of BS- VI training and certification for automotive mechanics and small garage technicians without which they may lose work in future. Also, the Company had contributed towards providing bionic artificial limbs to the beneficiaries who had lost their hands or legs in any road accident.

Financials

Financial performance

The details of the financial performance of the Company are included in the Balance Sheet and the Statement of Profit and Loss Account for FY 2024. During the year, the Profit before Tax has increased by 29.45%. This is in line with operational performance.

Changes in Key Financial Ratios

The changes in the key financial ratios for the FY 2023-24 as compared to the immediate previous financial year pursuant to Schedule V (B) of the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015, are as under:

Sl. No.	Particulars	FY 2023-24	FY 2022-23	Variance (in%)
i.	Debtors Turnover Ratio	10.58	10.37	2.07
ii.	Inventory Turnover Ratio	3.84	3.82	0.49
iii.	Debt Service Coverage Ratio	N.A.	965.61	-
iv.	Current Ratio	3.14	2.93	7.33
v.	Debt Equity Ratio	-	0.01	-100.00
vi.	Operating Profit Margin (%)	8.90	7.19	23.78
vii.	Net Profit Margin (%)	7.12	5.69	25.16

For the Company, Debt Service Coverage Ratio has decreased primarily due to payment against lease liabilities in the previous year.

Debt Equity Ratio has decreased primarily due to repayment of borrowings.

Operating Profit Margin and Net Profit Margin have increased primarily due to higher profits mainly attributable to a decrease in raw material prices and an increase in dividend income.

The Return on Net Worth for the year 2023-24 was 19.43% (p.y. 15.68%). The change is due to increase in profitability.

Risk Management Risks and Concerns

The Company is exposed to various risks that can negatively impact its operations and profitability, thereby, hindering its sustainable growth. Thus, it becomes necessary for the Company to identify these risks accurately and implement strategies to protect itself against potential losses and improve decision-making, therefore, supporting its future growth.

The Company faces usual industry risks, which inter-alia includes, market risk, product liability risk, product failure risk,

research and development risk, technical obsolescence risk, credit risk, inventory risk, manpower risk, cyber-attack risk, foreign exchange fluctuation risk, regulatory and compliance risk and capacity utilization risk. Save and except the aforesaid the Company does not foresee any other area of concern.

The organisation considered the above risks and accordingly made strategic decisions to ensure the said risks did not impede its growth and long-term sustainability. In addition to this, risk assessment was conducted for various functions associated with enterprise risk management that included manufacturing, sales and marketing, human resources, research and development, and financial management to protect the Company against any unforeseen risks. Deep dive sessions and general reviews had been undertaken at regular intervals during the year. The Company has been certified under ISO 31000:2018 standard with regard to Enterprise Risk Management practices.

Internal Control System

The Company has a comprehensive system of internal controls suited to the nature, scale, and complexity of its operations. These controls ensure the accuracy and completeness of financial statements and the timely preparation of reliable financial information. The Company continually evaluates and enhances these controls to maintain operational efficiency, accuracy of records and risk minimization.

Cautionary statement

The Management Discussion and Analysis (MD&A) section may contain statements regarding the Companys objectives, projections, estimates and expectations, which could be considered forward-looking statements by applicable securities laws and regulations. The outcomes could be very different from what is stated in these assertions. Demand and supply conditions both domestically and internationally, the cost and availability of essential materials, alterations to tax laws and government regulations, the nations economic development and other relevant factors impacting the Companys business operations are all significant determinants of the Companys operations. The Company disclaims all liability and responsibility for any loss resulting from or related to this report or its contents.

Place: Mumbai	On behalf of the Board D. S. Chandavarkar
Date: 18th May, 2024	Chairman